Estate Planning

Option 1: Give Some Now
Those who can afford to give their children or grandchildren some of their inheritance now will experience the joy of seeing the results. Money given now can help a child buy a house, start a business, be a stay-at-home parent, or send the grandchildren to college—milestones that may not have happened without this help. It also provides insight into how a child might handle a larger inheritance.
 
Option 2: Lump Sum
If the children are responsible adults, a lump sum distribution may seem like a good choice—especially if they are older and may not have many years left to enjoy the inheritance. However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse can have access to assets that are placed in a joint account or if the recipient adds the spouse as a co-owner. For parents who are concerned that a son-or daughter-in law could end up with their assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.
 
Option 3: Installments
Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around. Installments can be made at certain intervals (say, one-third upon the parent’s death, one-third five years later, and the final third five years after that) or when the heir reaches certain ages (say, age 25, age 30 and age 35). In either case, it is important to review the instructions from time to time and make changes as needed.
 
Option 4: Keep Assets in a Trust
Assets can be kept in a trust and provide for children and grandchildren, but not actually be given to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses. The trust can provide for a special needs dependent, or a child who might become incapacitated later, without jeopardizing valuable government benefits. If a child needs some incentive to earn a living, the trust can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If a child is financially secure, assets can be kept in a trust for grandchildren and future generations, yet still provide a safety net should this child’s financial situation change.

Every parent wants to make sure their children are provided for in the event something happens to them while the children are still minors. Grandparents, aunts, uncles and other relatives often want to leave some of their assets to young children, too. But good intentions and poor planning often have unintended results.
 
For example, many parents think if they name a guardian for their minor children in their wills and something happens to them, the named person will automatically be able to use the inheritance to take care of the children. But that’s not what happens. When the will is probated, the court will appoint a guardian to raise the child; usually this is the person named by the parents. But the court, not the guardian, will control the inheritance until the child reaches legal age (18 or 21). At that time, the child will receive the entire inheritance. Most parents would prefer that their children inherit at a later age, but with a simple will, you have no choice; once the child reaches the age of majority, the court must distribute the entire inheritance in one lump sum.
 
A court guardianship for a minor child is very similar to one for an incompetent adult. Things move slowly and can become very expensive. Every expense must be documented, audited and approved by the court, and an attorney will need to represent the child. All of these expenses are paid from the inheritance, and because the court must do its best to treat everyone equally under the law, it is difficult to make exceptions for each child’s unique needs.
 
Quite often children inherit money, real estate, stocks, CDs and other investments from grandparents and other relatives. If the child is still a minor when this person dies, the court will usually get involved, especially if the inheritance is significant. That’s because minor children can be on a title, but they cannot conduct business in their own names. So as soon as the owner’s signature is required to sell, refinance or transact other business, the court will have to get involved to protect the child’s interests.
 
Sometimes a custodial account is established for a minor child under the Uniform Transfer to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These are usually established through a bank and a custodian is named to manage the funds. But if the amount is significant, court approval may be required. In any event, the child will still receive the full amount at legal age.
 
A better option is to set up a children’s trust in a will. This would let you name someone to manage the inheritance instead of the court. You can also decide when the children will inherit. But the trust cannot be funded until the will has been probated, and that can take precious time and could reduce the assets. If you become incapacitated, this trust does not go into effect…because your will cannot go into effect until after you die.
 
Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, not the court, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do. And assets that remain in the trust are protected from the courts, irresponsible spending and creditors (even divorce proceedings).
 
If you have questions about estate planning for minor children, please contact my office.

The Key Takeaways

• Investing in a cause that we feel passionate about can give our lives new purpose.
• Even if we have limited finances, we can still find ways to contribute by giving of our time and/or talents.
• Our giving can influence subsequent generations and others around us by setting an example and communicating our values.

Finding Your Passion and Renewing Your Life

• If you are still searching for a way to make a difference, give some thought to what inspires you or what you care about deeply. It could be the arts, reading, the elderly, our military, disadvantaged children, teen mothers, or a clean planet.
• There are many organizations that need volunteers and financial help to do their good works. And, of course, most churches and religious organizations offer numerous ways to volunteer in your community and around the world.

Actions to Consider

• If you have children at home, include them in your volunteer work. If you make a donation, deliver the check in person and take your children with you.
• If you are retired or nearing retirement, you have the benefit of extra time to donate to your favorite causes. Some people choose to work part time in retirement so they will have extra money for living expenses and for donations.
• If you aren’t sure how to contribute, ask the organization you want to help. They are sure to have a number of suggestions with different time and money commitments.
• Whenever possible, work with local organizations that benefit your community. Get to know the people running the organization so you will know if they can be trusted with your contributions. This will also allow you to see the progress firsthand.
• If you have more substantial means, a charitable trust is an excellent way to give, and such a trust gives you many financial and non-financial benefits.

We use a variety of insurance products to manage risk in different areas of our lives in order to protect our wealth from losses that can come from property damage, businesses we own, disability, retirement and death. Instead of considering these products as separate items, make them part of an integrated, overall risk management plan.
 
Different Kinds of Insurance for Different Risks

1. Property: This would include insurance on automobiles and other vehicles; home, furnishings, jewelry and artwork, and personal liability insurance.
2. Business: Business owners need insurance on a building they own, office equipment and computers, as well as liability, worker compensation, errors and omissions insurance, and so on.
3. Health and Disability: Disability income insurance replaces part of your income for a certain length of time if you should become ill or injured and unable to work. Health insurance helps to pay for medical services received. Long-term care insurance helps to pay for extended care that is not covered by most health insurance or Medicare.
4. Retirement: Annuities and other insurance products can help replace income after retirement.
5. Estate Planning: Life insurance is often used to replace an earner’s income; to pay funeral expenses, debts and taxes; to fund family and charitable trusts; to fund a business buyout and compensate the surviving owner’s family; and to provide an inheritance to family members who do not work in a family business.

Actions to Consider

1. Trying to coordinate your insurance and manage your risk yourself is a daunting task. Instead, work with a team of advisors who have the knowledge and experience to help you make sure your risks are covered at the appropriate levels, without duplication and unnecessary costs.
2. An advisory team will usually include your financial investment advisor, estate planning attorney, and life, health and property/casualty insurance agent(s). Other members may be added to this team as needed.

With 2015 right around the corner, it’s time to start thinking about your new year’s resolutions.
 
It doesn’t matter whether you have an estate plan or don’t, one important item to add to your list is getting an estate plan checkup.
 
Don’t Have an Estate Plan?

• If you don’t already have an estate plan, then getting one in place should be at the top of your 2015 new year’s resolutions.
  Why? Because without an estate plan, you and your property may end up in a court-supervised guardianship if you become incapacitated, and your property and your loved ones may end up in probate court after you die.
• Worse yet, if you don’t take the time to make your own will, then the state where you live at the time of your death will essentially write one for you, and it most likely won’t divvy up your property the way you would have.
• A common misconception is that estate planning is only necessary for wealthy people. But this simply isn’t true – anyone with a bank or a retirement account, a home, or a family needs to make a plan for what happens if they become incapacitated or when they die. Of course the complexity of a plan will vary depending on your circumstances, but all estate plans should be put together with the help of an attorney who is experienced with the legal formalities required to create a valid will, trust, health care directive, and power of attorney in your state.

How Old is Your Estate Plan?

• Do you already have an estate plan?
• If you do, then please pull your documents out of the drawer, dust them off, and look at the date you signed them.
• Were your documents signed in the 80s or 90s, or, worse yet, before 1980? Then please run, don’t walk, to an estate planning attorney, because your documents are terribly out of date and need to be brought into the new millennium as soon as possible.
• Did you sign your documents between 2000 and 2009? Aside from the federal estate tax exemption jumping from $675,000 to $3,500,000 during that time period, state estate taxes disappeared in many states. Because of the significant changes in federal and state estate taxes, documents from this time period can be out of date and need to be tweaked in some shape or form.
• Did you sign your documents during 2010, 2011, or 2012? Federal estate taxes, gift taxes, and generation-skipping transfer taxes went through major changes during these years, and “portability” of the federal estate tax exemption between married couples was introduced. Unfortunately, while your estate planning documents may only be a few years old, they very likely do not take advantage of the opportunities made available from recent changes in federal tax laws. And, it’s not just tax laws that are changing – modifications to state laws governing wills, trusts, health care directives, and powers of attorney may warrant some revisions to your estate planning documents as well.
• And last but not least, regardless of what year you signed your estate planning documents, think about all of the changes in your life since you signed them. Did you get married or divorced, have a child or two or a grandchild or two, or move to a new state? Did you sell your business, retire, have a significant change in assets, or win the lottery? Any major changes in your family or financial situation will certainly have an affect on your estate plan.

Estate Planning is Not a One Shot Deal

• Estate planning is not a static event that you do once and then forget about it. On the contrary, estate planning is a continuing process, because life is a moving target that is full of constant change, so your estate plan needs to change as your life changes.

In general there are four grounds to challenge the validity of your will or trust:
 
1. The will or trust was not signed as required by state law. Each state has specific laws that dictate how a will or trust must be signed in order for it to be legally valid (usually wills not entirely in your handwriting must be signed in the presence of two witnesses who meet certain requirements).
 
2. The person making the will or trust lacked the necessary capacity. The capacity to make a will means that the person understands (a) their assets, (b) their family relationships, and (c) the legal effect of signing a will or trust. Each state has laws that set the threshold that must be overcome to prove that a person lacked sufficient mental capacity to sign a will or trust. Some states apply the same standard to establishing a trust and others apply the standards for capacity to make a contract (understand the purpose and effect of the contract).
 
3. The person making the will or trust was unduly influenced into signing it. As people age and become weaker both physically and mentally, others may exert influence over decisions, including how to plan their estate. Undue influence can also be exerted on the young and the not so young. In the context of a will or trust contest, undue influence means more than just nagging or verbal threats. It must be so extreme that it causes you to give in and change your estate plan to favor the undue influencer.
 
4. The will or trust was procured by fraud. A will or trust that is signed by someone who thinks they are signing some other type of document or a document with different provisions is one that is procured by fraud.
 
Will and trust contests are on the rise. Putting together an estate plan that is designed to head off challenges will go a long way to giving you and your loved ones peace of mind.
 
If you are interested in learning more about how to create and maintain an estate plan that will be difficult to overturn, please call our office now.